Beware Obama's State of the Union Energy Tax Rhetoric

President Obama's proposed energy tax increase ignores the time-tested truth that we can't tax our way out of an economic hole.

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Pete Sepp is executive vice president of the National Taxpayers Union.

Fresh from winning a comfortable victory at the polls in November, President Obama now seems obsessed with winning a Pyrrhic victory in Washington as he presses for a punitive tax attack against America's oil and natural gas industry. "Pyrrhic" is a term used to describe an outcome that's gained at excessive cost. Nothing could more aptly describe what the president seeks now—and worse, the "excessive cost" is one that's paid by the national economy and average American families.

As this column has recounted many times, politicians have been down this dead-end road before—indeed, some have never left the road. Last week, President Obama's brief news conference about the latest "fiscal cliff" seemed to renew the line of attack—and the offensive could very well continue in tonight's State of the Union address.

That would be a terrible mistake. The oil and natural gas industry has been consistently investing in the U.S. economy and creating jobs, from the beginning of the Great Recession in 2007 right through our sluggish recovery. This industry supports more than 9.2 million American jobs and that number is growing particularly as we continue to take advantage of the shale gas revolution. Oil and gas companies accounted for 148,000 new jobs in 2011—nine percent of the total new jobs created in all sectors of the economy.

[See a collection of political cartoons on the economy.]

President Obama's energy tax increase would be implemented by denying the oil and gas industry two legitimate tax provisions: one for creating American jobs and another for offsetting the cost of taxes paid to foreign countries on income earned outside the United States. These two portions of the law would remain in place for all other industries. The negative effects would not be subtle, and they would be felt well beyond the oil and gas industry. Not only would the employment picture be affected, making the industry pay double taxes on foreign income would handicap the industry's ability to compete internationally and invest domestically.

According to a study by Professor Joseph Mason at Louisiana State University, discriminatory tax treatment toward oil and gas for the job creation deduction and dual capacity would result in the loss of 155,000 jobs and $341 billion in economic output. Perhaps most ironically, the gross loss of revenue to the government would be $83.5 billion—almost three times the $30 billion in revenue that apologists for the energy tax attack contend it will produce.

The total tax increase package could cut off America's welcome energy boom at the source by raising the cost of drilling and exploring for domestic oil and natural gas. It would undo the progress America has made toward being a net exporter of energy. Domestic fuel and electricity prices would be forced up, making life more expensive for all of us.

[See a collection of political cartoons on energy policy.]

These realities are unlikely to find their way into the president's State of the Union speech tomorrow. If he mentions the energy tax attack it will be couched in the semantics of "tax reform." Traditional energy producers will be demonized as "Big Oil" and his policy will be presented as ending federal "subsidies" to rich companies. Chances are this will be discussed in the context of the looming "sequester," a Washington word for the slowdowns in federal spending scheduled to take effect March 1 if Congress and the administration can't agree on meaningful deficit reductions.

The president's call for a postponement of that deadline is to my organization little more than a stall tactic, and is not likely to give Congress the breathing space to make a serious attempt at modernizing and simplifying our tortuous tax code. Instead, that outcome might best be achieved through legislation such as the Tax Code Termination Act, which creates a procedural framework for a systemic overhaul.

[See a collection of political cartoons on Congress.]

Cleaning out decades' worth of special interest provisions could lead to overall tax rate reductions that would encourage economic growth, increase tax revenue, and lead us to a sustainable financial picture. By contrast, President Obama's proposed energy tax increase ignores the time-tested truth that we can't tax our way out of an economic hole. The increase he is proposing would make the hole deeper by denying the economy the benefits of a thriving oil and gas industry. It also violates the principle that government should not be picking winners and losers in the private sector. As my colleague Brandon Arnold put it:

If the oil industry wanted to curry favor with tax-hike proponents, it would probably be better off losing scads of money and rocketing towards bankruptcy. In that case, they might become the beneficiary of a large taxpayer-funded bailout. Instead, they could see their taxes raised dramatically as a punishment for making profitable business decisions.

American taxpayers have a deep, personal interest in stopping this tax attack on oil and gas producers. It is unfair and unwise. But more to the point, the collateral economic damage would hurt all of us at a time when we can least afford it.

  • Read Thomas Pyle: Obama Must Open Federal Land to Energy Development
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